THIRD DIVISION
[G.R. No. 211910. January 23, 2019.]
CREDIT MERCHANTS AND LENDING INVESTORS CORPORATION AND/OR CASH MANAGEMENT FINANCE, INC., petitioners, vs.SPOUSES CYRIL GANANCIAL AND MARY GANANCIAL, respondents.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, Third Division, issued a Resolution dated January 23, 2019, which reads as follows:
"G.R. No. 211910 (Credit Merchants and Lending Investors Corporation and/or Cash Management Finance, Inc. vs. Spouses Cyril Ganancial and Mary Ganancial). — This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision 1 dated October 29, 2013 and the Resolution 2 dated March 21, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 98550, which reversed and set aside the Decision 3 dated October 28, 2011 of the Regional Trial Court (RTC), Branch 66, Capas, Tarlac.
Antecedent Facts
Spouses Cyril and Mary Ganancial (Spouses Ganancial) are the owners/managers of Concepcion Bible Baptist Church and Academy in Tarlac. The lot on which the school was constructed was registered under the name of the Church and covered by Transfer Certificate of Title (TCT) No. 351486.
Sometime in December 2002, Spouses Ganancial obtained a loan from Credit Merchants & Lending Investors Corporation (CMLIC) in the amount of P800,000.00, payable in installment for four years as evidenced by a Promissory Note 4 dated December 12, 2002 (first promissory note). The proceeds of the loan were deducted with service fee of P40,000.00, reducing it to a net of P760,000.00, and was imposed with an interest of 192%, or 48% annually, for a total loan of P1,584,000.00. 5 To secure the obligation, they executed a Real Estate Mortgage 6 over TCT No. 351486 in favor of CMLIC.
On July 12, 2004, CMLIC and Spouses Ganancial agreed to restructure the loan supposedly to help the latter settle the remaining balance thereof in the amount of P548,000.00. In the process, Spouses Ganancial were granted another loan of P900,000.00, subject to 48% annual interest rate, for a total amount of P1,332,000.00. The obligation was payable in monthly installments for a period of one year, from August 2004 to July 2005, as reflected in Promissory Note 7 dated July 19, 2004 (second promissory note). Out of the total amount of the loan, however, only the amount of P312,040.00 was released to the spouses, the remainder thereof was applied to the balance of the original loan. SCaITA
Subsequently, in May 2006, the loan was again restructured and Spouses Ganancial were granted a new loan in the amount of P820,000.00, corresponding to the exact amount of their outstanding obligation, subject to an interest rate of 42%, for a total amount of P1,164,400.00. Evidenced by a Promissory Note 8 dated May 30, 2006 (third promissory note), the loan was payable in monthly installments, from June 2006 to May 2007.
Meanwhile, there is another Promissory Note dated December 12, 2002, which stated the amount of P2,336,016.00 as principal obligation, apparently executed by the parties on the same day as the first promissory note. According to Spouses Ganancial, this promissory note was presented to them by CMLIC, together with the real estate mortgage for their signature at the time that they were to secure their first loan. They, however, noticed the grossly bloated amount stated in the documents and asked that it be amended. The representative of CMLIC urged them to sign anyway but made an undertaking to (1) cancel the amount stated in the cash voucher and manually write the amount of P1,584,000.00 on the line pertaining to the loans receivable, and (2) cancel the promissory note and the real estate mortgage containing the amount of P2,336,016.00 by crossing out the said figure and entering the amount of P1,584,000.00 as originally agreed. Unknown to the spouses, however, CMLIC only cancelled the amount reflected in their copy of the mortgage contract but the other copy in the possession of the company retained the amount of P2,336,016.00 which was then registered and annotated at the back of TCT No. 351486. 9
The representative of CMLIC, Roy Calaguas (Calaguas), claimed that the Promissory Note dated December 12, 2002 with the stated amount of P2,336,016.00 was the original promissory note, but this was cancelled and replaced by the first promissory note as an accommodation to Spouses Ganancial's request for moratorium on interest. 10 Even then, he maintained that the amount of P2,336,016.00 was the original amount of the obligation that must be paid, as fully supported by three promissory notes and statements of account. 11
As the balance of the obligation remained outstanding upon maturity, CMLIC initiated the extrajudicial foreclosure of the mortgage. On September 19, 2007, the Clerk of Court of the RTC of Capas, Tarlac issued a Notice of Extrajudicial Sale. 12
On October 19, 2007, Spouses Ganancial filed a Complaint 13 for Annulment of Real Estate Mortgage, and Damages with Prayer for Temporary Restraining Order (TRO) and Injunction against CMLIC. They alleged that the imposed annual interest rates of 48% and 42%, and the penalty charge of 60% are iniquitous, unconscionable and exorbitant which consequently rendered the mortgage contract and promissory notes void for being contrary to morals and public policy.
On October 23, 2007, the RTC issued an Order 14 granting Spouses Ganancial's application for a TRO conditioned upon the posting of a bond of P100,000.00.
Subsequently, on October 28, 2011, the RTC rendered a Decision, 15 the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the Court holds the real estate mortgage valid and binding but the annotated real estate mortgage in the amount of P2,336,016.00 in Entry No. 42-24729 in TCT No. 351486 is ordered to be cancelled by the Registry of Deeds of Tarlac to be replaced by the current Real Estate Mortgage between the parties.
The complaint and the counterclaim are dismissed.
The parties shall shoulder their respective expenses of litigations.
SO ORDERED. 16
The parties filed their respective motions for reconsideration 17 from the foregoing decision. Spouses Ganancial reiterated that the mortgage contract and promissory notes must be invalidated on the ground that the interest and penalty stipulations were unconscionable, iniquitous and exorbitant. 18 CMLIC, on the other hand, argued that the interest rates imposed on the obligations were consistent with the prevailing rates in the local or international capital markets and were mutually agreed by the parties, hence, valid and binding between them. 19 aTHCSE
In an Order 20 dated February 21, 2012, the RTC denied both motions, disposing thus:
WHEREFORE, premises considered, the Court hereby orders the cancellation of Entry No. 42-24729 in TCT No. 351486 of the Real Estate Mortgage amounting to P2,336,016.00 to be replaced by the Real Estate Mortgage in the amount of P1,584,000.00.
Both the Motion for Reconsideration of [Spouses Ganancial] and the Motion for Partial Reconsideration by [CMLIC] are denied for lack of merit.
SO ORDERED. 21
Both parties filed an appeal from the decision of the RTC to the CA. After the parties submitted their respective briefs, the CA rendered a decision, 22 holding that the interest rates imposed by CMLIC were iniquitous and exorbitant. The pertinent portion of the decision reads, thus:
WHEREFORE, the Decision dated 28 October 2011 and Order dated 21 February 2012 of the Regional Trial Court, Third Judicial Region, Capas, Tarlac, Branch 66, in Civil Case No. 792-C-07, are REVERSED and SET ASIDE. The interest rate for the subject loans is hereby fixed at six percent (6%) per annum, counted from the date each obligation was contracted. The aggregate obligation, including interest shall conform with the computation as heretofore discussed. A six percent (6%) shall be imposed on such amount upon finality of this decision until payment. thereof.
SO ORDERED. 23
Unyielding, CMLIC filed a motion for reconsideration of the decision of the CA but the same was denied in a Resolution 24 dated March 21, 2014, the dispositive portion of which reads, thus:
WHEREFORE, the instant Motion for Reconsideration is hereby DENIED for lack of merit.
SO ORDERED. 25
On May 22, 2014, CMLIC filed the instant petition for review on certiorari before this Court. Mainly, it argues that the CA erred in holding that the interest rates in the mortgage contract and promissory notes are iniquitous and exorbitant, and in reducing the same to six percent. It reiterates that the mortgage contract and promissory notes were mutually agreed upon and consistent with the prevailing rates of interest in the market. 26
Ruling of the Court
The petition lacks merit.
Basic is the rule that the terms of a mutually-agreed contract stand as the law between the parties. Verily, "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." 27 The rule generally holds true in all instances "unless the stipulations in a contract are contrary to law, morals, good customs, public order or public policy." 28
Falling under the exceptions are stipulations of interest that are unconscionable and iniquitous. These stipulations are deemed unjust, immoral and contrary to public policy. In Sps. Castro v. Tan, et al., 29 the Court held, thus:
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals. 30 cAaDHT
It bears pointing out that for quite some time now, usury has been legally non-existent and that interest can now be stipulated as the parties to a contract may agree. With the "suspension of the Usury Law and the removal of interest ceiling in Central Bank Circular No. 905, s. 1982, the parties are free to stipulate the interest to be imposed on monetary obligations." 31 Even then, "interest rates whenever unconscionable may still be declared illegal. There is certainly nothing in said circular which 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." 32
In a long line of jurisprudence, the Court has declared as invalid interest rates found to be excessive or unconscionable. In Medel v. Court of Appeals, 33 it ruled that interest rates at 5.5% per month or 66% per annum, in the promissory note were iniquitous or unconscionable, hence, contrary to morals. The stipulation was declared void and the legal interest rate was imposed in lieu thereof. Further, in Spouses Castro, 34 the Court held that a 5% monthly interest was unconscionable and invalidated the same. Similarly, in Ruiz v. Court of Appeals, 35 the Court found the interest rate of 3% per month, or 36% annually, to be excessive and equitably reduced the same to 1% per month.
In this case, the Court fully agrees with the CA in holding that the monthly interest rates of 3.5% to 4% imposed on the obligations of Spouses Ganancial are excessive and unconscionable. The stipulation on interest being void, "it is deemed inexistent from the beginning. The debt is to be considered without the stipulation of the iniquitous and unconscionable interest rate." 36 In such case, the same may be reduced to the prevailing legal interest rate.
Nonetheless, in order to conform with existing jurisprudence, modification has to be made on the interest rate imposed on the obligations. In its ruling, the CA reduced the interest imposed on the obligation to 6% per annum, the prevailing legal interest at the time of promulgation of the decision. Indeed, in Nacar v. Gallery Frames, et al., 37 the Court reduced the legal interest rate from 12% to 6% per annum. It was, however, pointed out that the reduced rate shall have a prospective application from its date of effectivity on July 1, 2013. The pertinent portion of the ruling reads, thus:
[T]he Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013. HCaDIS
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum — as reflected in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 — but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. 38 (Citations omitted)
In view of the foregoing, "the interest rate of loans or, forbearance of money, in the absence of stipulation, shall be six percent (6%) effective only from July 1, 2013. Prior to July 1, 2013, the rate of interest on loans or forbearance of money, in the absence of stipulation, is still 12%." 39 Thus, in recomputing the outstanding obligation of Spouses Ganancial, the interest rate of 12% per annum must be imposed on the obligations from the time they were contracted until June 30, 2013 and 6% per annum from July 1, 2013 until fully paid, deducting therefrom the total amount of payments made by Spouses Ganancial in the amount of P1,432,329.55.
Finally, the Court also finds it proper to delete the monthly penalty charge of 5% stipulated in the promissory notes for lack of legal basis. Penalty charges are in the nature of liquidated damages or those agreed upon by the parties to a contract, to be paid in case of breach thereof. 40 Apart from being iniquitous and unconscionable, there is also no basis for the imposition of penalty charges considering that there is no clear statement when the breach in the contract intervened. While the matter pertaining to the penalty charges was not squarely raised in the petition, this will not prevent us from considering the same, so as to arrive at a just resolution of the case. "In the exercise of our appellate jurisdiction, we are clothed with ample authority to review findings and rulings of lower courts even if they are not assigned as errors. This is especially so if we find that their consideration is necessary in arriving at a just decision of the case." 41 Certainly, it is preposterous to reduce the interest on the loans to the minimum allowed by law when the same can be skirted by the imposition of surcharges or penalties at unconscionable rates. In order to avert this absurd situation, the penalty charge, which, apart from being iniquitous and unconscionable, is also completely unfounded, must be deleted.
WHEREFORE, the Decision dated October 29, 2013 and Resolution dated March 21, 2014 of the Court of Appeals in CA-G.R. CV No. 98550 are hereby AFFIRMED with the following MODIFICATIONS: (1) that in the recomputation of the outstanding obligation of Spouses Cyril and Mary Ganancial, the interest rate of 12% per annum shall be imposed on the obligations from the time they were contracted until June 30, 2013 and 6% per annum from July 1, 2013 until fully paid, deducting therefrom the total amount of payments made in the amount of P1,432,329.55, and (2) that the penalty charge of 5% in the promissory notes is hereby DELETED. aCIHcD
SO ORDERED." (Carandang, J., additional Member per S.O. No. 2624, dated November 28, 2018)
Very truly yours,
(SGD.) WILFREDO V. LAPITANDivision Clerk of Court
Footnotes
1. Penned by Associate Justice Japar B. Dimaampao, with Associate Justices Elihu A. Ybañez and Victoria Isabel A. Paredes concurring; rollo, pp. 43-50.
2.Id. at 52-53.
3.Id. at 240-245.
4.Id. at 71.
5.Id. at 72.
6.Id. at 66-69.
7.Id. at 73.
8.Id. at 74.
9.Id. at 222-223.
10.Id. at 206-207.
11.Id. at 202.
12.Id. at 157.
13.Id. at 55-62.
14.Id. at 92-93.
15. Id. at 240-245.
16. Id. at 245.
17. Id. at 246-266, 267-276.
18. Id. at 275.
19. Id. at 251.
20. Id. at 295-297.
21. Id. at 296-297.
22. Id. at 43-50.
23. Id. at 49.
24. Id. at 52-53.
25. Id. at 53.
26. Id. at 19.
27. Rodolfo Morla v. Corazon Nisperos Belmonte, 678 Phil. 102, 117 (2011).
28. Id.
29. 620 Phil. 239 (2009).
30. Id. at 242-243.
31. Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, 544 Phil. 18, 26 (2007).
32. Supra note 29, at 247.
33. 359 Phil. 820, 830 (1998).
34. Supra note 29, at 247.
35. 449 Phil. 419, 433-435.
36. Sps. Castro v. Tan, et al., supra note 29, at 249.
37. 716 Phil. 267 (2013).
38. Id. at 279-281.
39. Uy v. Estate of Vipa Fernandez, G.R. No. 200612, April 5, 2017, 822 SCRA 382, 399.
40. Article 2226, New Civil Code.
41. Sps. Castro v. Tan, et al., supra note 29, at 251.