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ARTICLE 1175

G.R. No. 131622 November 27, 1998

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO

FRANCO, petitioners,

vs.

COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and

DANILO G. GONZALES, JR. doing lending business under the

trade name and style "GONZALES CREDIT

ENTERPRISES", respondents.

PARDO, J.:

The case before the Court is a petition for review

on certiorari, under Rule 45 of the Revised Rules of Court,

seeking to set aside the decision of the Court of

Appeals,1

and its resolution denying reconsideration,2the

dispositive portion of which decision reads as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED

such that defendants are hereby-ordered to pay the plaintiff:

the sum of P500,000.00, plus 5.5% per month interest and 2%service charge per annum effective July 23, 1986, plus 1% per

month of the total amount due and demandable as penalty

charges effective August 23, 1986, until the entire amount is

fully paid.

The award to the plaintiff of P50,000.00 as attorney's fees is

affirmed. And so is the imposition of costs against the

defendants.

SO ORDERED.3

The Court required the respondents to comment on the

petition,4which was filed on April 3, 1998, 5and the

petitioners to reply thereto, which was filed on May 29,

1998.6

We now resolve to give due course to the petition and

decide the case.

The facts of the case, as found by the Court of Appeals in its

decision, which are considered binding and conclusive on the

parties herein, as the appeal is limited to questions of law,

are as follows:

On November 7, 1985, Servando Franco and Leticia Medel

(hereafter Servando and Leticia) obtained a loan from

Veronica R. Gonzales (hereafter Veronica), who was engagedin the money lending business under the name "Gonzales

Credit Enterprises", in the amount of P50,000.00, payable in

two months. Veronica gave only the amount of P47,000.00,

to the borrowers, as she retained P3,000.00, as advance

interest for one month at 6% per month. Servando and Leticia

executed a promissory note for P50,000.00, to evidence the

loan, payable on January 7, 1986.

On November 19, 1985, Servando and Liticia obtained from

Veronica another loan in the amount of P90,000.00, payable

in two months, at 6% interest per month. They executed a

promissory note to evidence the loan, maturing on Janaury

19, 1986. They received only P84,000.00, out of the proceeds

of the loan.

On maturity of the two promissory notes, the borrowers

failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from

Veronica still another loan in the amout of P300,000.00,

maturing in one month, secured by a real estate mortgage

over a property belonging to Leticia Makalintal Yaptinchay

who issued a special power of attorney in favor of Leticia

Medel, authorizing her to execute the mortgage. Servando

and Leticia executed a promissory note in favor of Veronica

to pay the sum of P300,000.00, after a month, or on July 11,

1986. However, only the sum of P275.000.00, was given to

them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay thethird loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's

husband, Dr. Rafael Medel, consolidated all their previous

unpaid loans totaling P440,000.00, and sought from Veronica

another loan in the amount of P60,000.00, bringing thei

indebtedness to a total of P500,000.00, payable on August

23, 1986. They executed a promissory note, reading as

follows:

Baliwag, BulacanJuly 23, 1986

Maturity DateAugsut 23, 1986

P500,000.00

FOR VALUE RECEIVED, I/WE jointly and severally promise to

pay to the order of VERONICA R. GONZALES doing business in

the business style of GONZALES CREDIT ENTERPRISES

Filipino, of legal age, married to Danilo G. Gonzales, Jr., of

Baliwag, Bulacan, the sum of PESOS . . . FIVE HUNDRED

THOUSAND . . . (P500,000.00) Philippine Currency with

interest thereon at the rate of 5.5 PER CENT per month plus

2% service charge per annum from date hereof until fully paid

according to the amortization schedule contained herein(Emphasis supplied)

Payment will be made in full at the maturity date.

Should I/WE fail to pay any amortization or portion hereof

when due, all the other installments together with all interest

accrued shall immediately be due and payable and I/WE

hereby agree to pay an additional amount equivalent to one

per cent (1%) per month of the amount due and demandable

as penalty charges in the form of liquidated damages unti

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ARTICLE 1175

fully paid; and the furthersum of TWENTY FIVE PER CENT

(25%) thereof in full, without deductions as Attorney's

Feewhether actually incurred or not, of the total amount due

and demandable, exclusive of costs and judicial or extra

judicial expenses. (Emphasis supplied).

I, WE further agree that in the event the present rate of

interest on loan is increased by law or the Central Bank of the

Philippines, the holder shall have the option to apply and

collect the increased interest charges without notice although

the original interest have already been collected wholly or

partially unless the contrary is required by law.

It is also a special condition of this contract that the parties

herein agree that the amount of peso-obligation under this

agreement is based on the present value of the peso, and if

there be any change in the value thereof, due to

extraordinary inflation or deflation, or any other cause or

reason, then the peso-obligation herein contracted shall be

adjusted in accordance with the value of the peso then

prevailing at the time of the complete fulfillment of the

obligation.

Demand and notice of dishonor waived. Holder may accept

partial payments and grant renewals of this note or extension

of payments, reserving rights against each and all indorsers

and all parties to this note.

IN CASE OF JUDICIAL Execution of this obligation, or any part

of it, the debtors waive all his/their rights under the

provisions of Section 12, Rule 39, of the Revised Rules of

Court.

On maturity of the loan, the borrowers failed to pay the

indebtedness of P500,000.00, plus interests and penalties,

evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her

husband Danilo G. Gonzales, filed with the Regional Trial

Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint

for collection of the full amount of the loan including

interests and other charges.

In his answer to the complaint filed with the trial court on

April 5, 1990, defendant Servando alleged that he did not

obtain any loan from the plaintiffs; that it was defendants

Leticia and Dr. Rafael Medel who borrowed from the

plaintiffs the sum of P500,000.00, and actually received the

amount and benefited therefrom; that the loan was secured

by a real estate mortgage executed in favor of the plaintiffs,

and that he (Servando Franco) signed the promissory note

only as a witness.

In their separate answer filed on April 10, 1990, defendants

Leticia and Rafael Medel alleged that the loan was the

transaction of Leticia Yaptinchay, who executed a mortgage

in favor of the plaintiffs over a parcel of real estate situated in

San Juan, Batangas; that the interest rate is excessive at 5.5%

per month with additional service charge of 2% per annum

and penalty charge of 1% per month; that the stipulation for

attorney's fees of 25% of the amount due is unconscionable

illegal and excessive, and that substantial payments made

were applied to interest, penalties and other charges.

After due trial, the lower court declared that the due

execution and genuineness of the four promissory notes had

been duly proved, and ruled that although the Usury Law had

been repealed, the interest charged by the plaintiffs on the

loans was unconscionable and "revolting to the conscience"

Hence, the trial court applied "the provision of the New [Civil]

Code" that the "legal rate of interest for loan or forbearance

of money, goods or credit is 12% per annum."7

Accordingly, on December 9, 1991, the trial court rendered

judgment, the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is hereby

rendered, as follows:

1. Ordering the defendants Servando Franco and Leticia

Medel, jointly and severally, to pay plaintiffs the amount of

P47,000.00 plus 12% interest per annum from November 7

1985 and 1% per month as penalty, until the entire amount is

paid in full.

2. Ordering the defendants Servando Franco and Leticia Y

Medel to plaintiffs, jointly and severally the amount of

P84,000.00 with 12% interest per annum and 1% per cent per

month as penalty from November 19, 1985 until the whole

amount is fully paid;

3. Ordering the defendants to pay the plaintiffs, jointly and

severally, the amount of P285,000.00 plus 12% interest pe

annum and 1% per month as penalty from July 11, 1986, unti

the whole amount is fully paid;

4. Ordering the defendants to pay plaintiffs, jointly and

severally, the amount of P50,000.00 as attorney's fees;

5. All counterclaims are hereby dismissed.

With costs against the defendants.8

In due time, both plaintiffs and defendants appealed to theCourt of Appeals.

In their appeal, plaintiffs-appellants argued that the

promissory note, which consolidated all the unpaid loans of

the defendants, is the law that governs the parties. They

further argued that Circular No. 416 of the Central Bank

prescribing the rate of interest for loans or forbearance o

money, goods or credit at 12% per annum, applies only in the

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ARTICLE 1175

absence of a stipulation on interest rate, but not when the

parties agreed thereon.

The Court of Appeals sustained the plaintiffs-appellants'

contention. It ruled that "the Usury Law having become

'legally inexistent' with the promulgation by the Central Bank

in 1982 of Circular No. 905, the lender and borrower could

agree on any interest that may be charged on the loan".9

The

Court of Appeals further held that "the imposition of 'an

additional amount equivalent to 1% per month of the amount

due and demandable as penalty charges in the form of

liquidated damages until fully paid' was allowed by

law".10

Accordingly, on March 21, 1997, the Court of Appeals

promulgated its decision reversing that of the Regional Trial

Court, disposing as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED

such that defendants are hereby ordered to pay the plaintiffs

the sum of P500,000.00, plus 5.5% per month interest and 2%

service charge per annum effective July 23, 1986, plus 1% permonth of the total amount due and demandable as penalty

charges effective August 24, 1986, until the entire amount is

fully paid.

The award to the plaintiffs of P50,000.00 as attorney's fees is

affirmed. And so is the imposition of costs against the

defendants.

SO ORDERED.11

On April 15, 1997, defendants-appellants filed a motion for

reconsideration of the said decision. By resolution dated

November 25, 1997, the Court of Appeals denied themotion.

12

Hence, defendants interposed the present

recoursevia petition for review oncertiorari.13

We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate

stipulated upon. Thus, the question presented is whether or

not the stipulated rate of interest at 5.5% per month on the

loan in the sum of P500,000.00, that plaintiffs extended to

the defendants is usurious. In other words, is the Usury Law

still effective, or has it been repealed by Central Bank Circular

No. 905, adopted on December 22, 1982, pursuant to its

powers under P.D. No. 116, as amended by P.D. No. 1684?

We agree with petitioners that the stipulated rate of interest

at 5.5% per month on the P500,000.00 loan is excessive,

iniquitous, unconscionable and exorbitant.13

However, we

can not consider the rate "usurious" because this Court has

consistently held that Circular No. 905 of the Central Bank,

adopted on December 22, 1982, has expressly removed the

interest ceilings prescribed by the Usury Law14

and that the

Usury Law is now "legally inexistent".15

InSecurity Bank and Trust Company vs. Regional Trial Court of

Makati, Branch 6116

the Court held that CB Circular No. 905

"did not repeal nor in anyway amend the Usury Law but

simply suspended the latter's effectivity." Indeed, we have

held that "a Central Bank Circular can not repeal a law. Only a

law can repeal another law."17

In the recent case ofFlorendo

vs. Court of Appeals18, the Court reiterated the ruling that

"by virtue of CB Circular 905, the Usury Law has been

rendered ineffective". "Usury has been legally non-existent in

our jurisdiction. Interest can now be charged as lender and

borrower may agree upon."19

Nevertheless, we find the interest at 5.5% per month, or 66%

per annum, stipulated upon by the parties in the promissory

note iniquitous or unconscionable, and, hence, contrary to

morals ("contra bonos mores"), if not against the law.20

The

stipulation is void.21

The courts shall reduce equitably

liquidated damages, whether intended as an indemnity or a

penalty if they are iniquitous or unconscionable. 22

Consequently, the Court of Appeals erred in upholding the

stipulation of the parties. Rather, we agree with the tria

court that, under the circumstances, interest at 12% per

annum, and an additional 1% a month penalty charge as

liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the

decision of the Court of Appeals promulgated on March 21,

1997, and its resolution dated November 25, 1997. Instead

we render judgment REVIVING and AFFIRMING the decision

dated December 9, 1991, of the Regional Trial Court ofBulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-

M-90, involving the same parties.

No pronouncement as to costs in this instance.

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ARTICLE 1175

G.R. No. 146942 April 22, 2003

CORAZON G. RUIZ,petitioner,vs.

COURT OF APPEALS and CONSUELO TORRES,respondents.

PUNO, J.:

On appeal is the decision1of the Court of Appeals in CA-G.R.

CV No. 56621 dated 25 August 2000, setting aside the

decision2of the trial court dated 19 May 1997 and lifting the

permanent injunction on the foreclosure sale of the subject

lot covered by TCT No. RT-96686, as well as its subsequent

Resolution3dated 26 January 2001, denying petitioners

Motion for Reconsideration.

The facts of the case are as follows:

Petitioner Corazon G. Ruiz is engaged in the business of

buying and selling jewelry.4She obtained loans from private

respondent Consuelo Torres on different occasions, in the

following amounts: P100,000.00; P200,000.00; P300,000.00;

and P150,000.00.5Prior to their maturity, the loans were

consolidated under one (1) promissory note dated March 22,

1995, which reads as follows:6

"P750,000.00 Quezon City, March

22, 1995

PROMISSORY NOTE

For value received, I, CORAZON RUIZ, as principal

and ROGELIO RUIZ as surety in solidum, jointly and severally

promise to pay to the order of CONSUELO P. TORRES the sum

of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00)

Philippine Currency, to earn an interest at the rate of three

per cent (3%) a month, for thirteen months, payable every

_____ of the month, and to start on April 1995 and to mature

on April 1996, subject to renewal.

If the amount due is not paid on date due, a SURCHARGE ofONE PERCENT of the principal loan, for every month default,

shall be collected.

Remaining balance as of the maturity date shall earn an

interest at the rate of ten percent a month, compounded

monthly.

It is finally agreed that the principal and surety in solidum,

shall pay attorneys fees at the rate of twenty-five percent

(25%) of the entire amount to be collected, in case this note

is not paid according to the terms and conditions set forth,

and same is referred to a lawyer for collection.

In computing the interest and surcharge, a fraction of the

month shall be considered one full month.

In the event of an amicable settlement, the principal and

surety in solidum shall reimburse the expenses of the

plaintiff.

(Sgd.) Corazon Ruiz

Principal

__

Su

The consolidated loan of P750,000.00 was secured by a rea

estate mortgage on a 240-square meter lot in New Haven

Village, Novaliches, Quezon City, covered by Transfer

Certificate of Title (TCT) No. RT-96686, and registered in the

name of petitioner.7 The mortgage was signed by Corazon

Ruiz for herself and as attorney-in-fact of her husband

Rogelio. It was executed on 20 March 1995, or two (2) days

before the execution of the subject promissory note.8

Thereafter, petitioner obtained three (3) more loans from

private respondent, under the following promissory notes: (1

promissory note dated 21 April 1995, in the amount of

P100,000.00;9(2) promissory note dated May 23, 1995, in the

amount of P100,000.00;10

and (3) promissory note dated

December 21, 1995, in the amount of P100,000.00.11

These

combined loans of P300,000.00 were secured by P571,000.00

worth of jewelry pledged by petitioner to private

respondent.12

From April 1995 to March 1996, petitioner paid the stipulated

3% monthly interest on the P750,000.00 loan,13

amounting to

P270,000.00.14

After March 1996, petitioner was unable to

make interest payments as she had difficulties collecting from

her clients in her jewelry business.15

Due to petitioners failure to pay the principal loan o

P750,000.00, as well as the interest payment for April 1996

private respondent demanded payment not only of the

P750,000.00 loan, but also of the P300,000.00 loan.16

When

petitioner failed to pay, private respondent sought the extra

judicial foreclosure of the aforementioned real estate

mortgage.17

On September 5, 1996, Acting Clerk of Court and Ex-OfficioSheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G. Aca

and Supervising Sheriff Silverio P. Bernas issued a Notice of

Sheriffs Sale of subject lot. The public auction was scheduled

on October 8, 1996.18

On October 7, 1996, one (1) day before the scheduled auction

sale, petitioner filed a complaint with the RTC of Quezon City

docketed as Civil Case No. Q-96-29024, with a prayer for the

issuance of a Temporary Restraining Order to enjoin the

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ARTICLE 1175

sheriff from proceeding with the foreclosure sale and to fix

her indebtedness to private respondent to P706,000.00. The

computed amount of P706,000.00 was based on the

aggregate loan of P750,000.00, covered by the March 22,

1995 promissory note, plus the other loans of P300,000.00,

covered by separate promissory notes, plus interest, minus

P571,000.00 representing the amount of jewelry pledged in

favor of private respondent.19

The trial court granted the prayer for the issuance of a

Temporary Restraining Order,20

and on 29 October 1996,

issued a writ of preliminary injunction.21

In its Decision dated

May 19, 1997, it ordered the Clerk of Court and Ex-Officio

Sheriff to desist with the foreclosure sale of the subject

property, and it made permanent the writ of preliminary

injunction. It held that the real estate mortgage is

unenforceable because of the lack of the participation and

signature of petitioners husband. It noted that although the

subject real estate mortgage stated that petitioner was

"attorney-in-fact for herself and her husband," the Special

Power of Attorney was never presented in court during thetrial.

22

The trial court further held that the promissory note in

question is a unilateral contract of adhesion drafted by

private respondent. It struck down the contract as repugnant

to public policy because it was imposed by a dominant

bargaining party (private respondent) on a weaker party

(petitioner).23

Nevertheless, it held that petitioner still has an

obligation to pay the private respondent. Private respondent

was further barred from imposing on petitioner the

obligation to pay the surcharge of one percent (1%) per

month from March 1996 onwards, and interest of ten percent(10%) a month, compounded monthly from September 1996

to January 1997. Petitioner was thus ordered to pay the

amount of P750,000.00 plus three percent (3%) interest per

month, or a total of P885,000.00, plus legal interest from date

of [receipt of] the decision until the total amount of

P885,000.00 is paid.24

Aside from the foregoing, the trial court took into account

petitioners proposal to pay her other obligations to private

respondent in the amount of P392,000.00.25

The trial court also recognized the expenses borne by private

respondent with regard the foreclosure sale and attorneys

fees. As the notice of the foreclosure sale has already been

published, it ordered the petitioner to reimburse private

respondent the amount of P15,000.00 plus attorneys fees of

the same amount.26

Thus, the trial court computed petitioners obligation to

private respondent, as follows:

Principal Loan . P 750,000.00

Interest.. 135,000.00

Other Loans. 392,000.00

Publication Fees. 15,000.00

Attorneys Fees 15,000.00

TOTAL P1,307,000.00

with legal interest from date of receipt of decision unti

payment of total amount of P1,307,000.00 has been made.27

Private respondents motion for reconsideration was denied

in an Order dated July 21, 1997.

Private respondent appealed to the Court of Appeals. The

appellate court set aside the decision of the trial court. It

ruled that the real estate mortgage is valid despite the non-

participation of petitioners husband in its execution becausethe land on which it was constituted is paraphernal property

of petitioner-wife. Consequently, she may encumber the lot

without the consent of her husband.28

It allowed its

foreclosure since the loan it secured was not paid.

Nonetheless, the appellate court declared as invalid the 10%

compounded monthly interest29

and the 10% surcharge pe

month stipulated in the promissory notes dated May 23, 1995

and December 1, 1995,30

and so too the 1% compounded

monthly interest stipulated in the promissory note dated 21

April 1995,31

for being excessive, iniquitous, unconscionable

and contrary to morals. It held that the legal rate of interestof 12% per annum shall apply after the maturity dates of the

notes until full payment of the entire amount due, and that

the only permissible rate of surcharge is 1% per month

without compounding.32

The appellate court also granted

attorneys fees in the amount of P50,000.00, and not the

stipulated 25% of the amount due, following the ruling in the

case of Medel v. Court of Appeals.33

Now, before this Court, petitioner assigns the following

errors:

(1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERREDIN RULING THAT THE PROMISSORY NOTE OF P750,000.00 IS

NOT A CONTRACT OF ADHESION DESPITE THE CLEAR

SHOWING THAT THE SAME IS A READY-MADE CONTRACT

PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND

DID NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED

HEAVILY IN FAVOR OF RESPONDENT AND AGAINST

PETITIONER.

(2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED

IN DECLARING THAT THE PROPERTY COVERED BY THE

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ARTICLE 1175

SUBJECT DEED OF MORTGAGE OF MARCH 20, 1995 IS A

PARAPHERNAL PROPERTY OF THE PETITIONER AND NOT

CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER OR NOT

THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER

RAISED, NOR DISCUSSED AND ARGUED BEFORE THE TRIAL

COURT.

(3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED

IN DISREGARDING THE TRIAL COURTS COMPUTATION OF

THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE)

RESPONDENT TORRES EVEN THOUGH THE SAME IS BASED ON

EVIDENCE SUBMITTED BEFORE IT.

The pertinent issues to be resolved are:

(1) Whether the promissory note of P750,000.00 is a contract

of adhesion;

(2) Whether the real property covered by the subject deed of

mortgage dated March 20, 1995 is paraphernal property of

petitioner; and

(3) Whether the rates of interests and surcharges on theobligation of petitioner to private respondent are valid.

I

We hold that the promissory note in the case at bar is not a

contract of adhesion. In Sweet Lines, Inc. vs. Teves,34

this

Court discussed the nature of a contract of adhesion as

follows:

". . . there are certain contracts almost all the provisions of

which have been drafted only by one party, usually a

corporation. Such contracts are called contracts of adhesion,

because the only participation of the other party is the

signing of his signature or his adhesion thereto. Insurance

contracts, bills of lading, contracts of sale of lots on the

installment plan fall into this category.35

" . . . it is drafted only by one party, usually the corporation,

and is sought to be accepted or adhered to by the other party

. . . who cannot change the same and who are thus made to

adhere hereto on the take it or leave it basis . . . "36

In said case of Sweet Lines,37

the conditions of the contract on

the 4 x 6 inches passenger ticket are in fine print. Thus we

held:

" . . . it is hardly just and proper to expect the passengers to

examine their tickets received from crowded/congested

counters, more often than not during rush hours, for

conditions that may be printed thereon, much less charge

them with having consented to the conditions, so printed,

especially if there are a number of such conditions in fine

print, as in this case."38

We further stressed in the said case that the questioned

Condition No. 14 was prepared solely by one party which

was the corporation, and the other party who was then a

passenger had no say in its preparation. The passengers have

no opportunity to examine and consider the terms and

conditions of the contract prior to the purchase of their

tickets.39

In the case at bar, the promissory note in question did not

contain any fine print provision which could not have been

examined by the petitioner. Petitioner had all the time to go

over and study the stipulations embodied in the promissory

note. Aside from the March 22, 1995 promissory note for

P750,000.00, three other promissory notes of different dates

and amounts were executed by petitioner in favor of private

respondent. These promissory notes contain similar terms

and conditions, with a little variance in the terms of interests

and surcharges. The fact that petitioner and private

respondent had entered into not only one but several loan

transactions shows that petitioner was not in any way

compelled to accept the terms allegedly imposed by privaterespondent. Moreover, petitioner, in her complaint

40dated

October 7, 1996 filed with the trial court, never claimed that

she was forced to sign the subject note. Paragraph five of her

complaint states:

"That on or about March 22, 1995 plaintiff was required by

the defendant Torres to execute a promissory note

consolidating her unpaid principal loan and interests which

said defendant computed to be in the sum of P750,000.00 .

."

To be required is certainly different from being compelled

She could have rejected the conditions made by private

respondent. As an experienced business- woman, she ought

to understand all the conditions set forth in the subject

promissory note. As held by this Court in Lee, et al. vs. Cour

of Appeals, et al.,41

it is presumed that a person takes

ordinary care of his concerns.42

Hence, the natura

presumption is that one does not sign a document without

first informing himself of its contents and consequences. This

presumption acquires greater force in the case at bar where

not only one but several documents were executed at

different times by petitioner in favor of private respondent.

II

We also affirm the ruling of the appellate court that the rea

property covered by the subject deed of mortgage is

paraphernal property. The property subject of the mortgage

is registered in the name of "Corazon G. Ruiz, of legal age

married to Rogelio Ruiz, Filipinos." Thus, title is registered in

the name of Corazon alone because the phrase "married to

Rogelio Ruiz" is merely descriptive of the civil status of

Corazon and should not be construed to mean that he

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ARTICLE 1175

husband is also a registered owner. Furthermore, registration

of the property in the name of "Corazon G. Ruiz, of legal age,

married to Rogelio Ruiz" is not proof that such property was

acquired during the marriage, and thus, is presumed to be

conjugal. The property could have been acquired by Corazon

while she was still single, and registered only after her

marriage to Rogelio Ruiz. Acquisition of title and registration

thereof are two different acts.43

The presumption under

Article 116 of the Family Code that properties acquired duringthe marriage are presumed to be conjugal cannot apply in the

instant case. Before such presumption can apply, it must first

be established that the property was in fact acquired during

the marriage. In other words, proof of acquisition during the

marriage is a condition sine qua nonfor the operation of the

presumption in favor of conjugal ownership.44

No such proof

was offered nor presented in the case at bar. Thus, on the

basis alone of the certificate of title, it cannot be presumed

that said property was acquired during the marriage and that

it is conjugal property. Since there is no showing as to when

the property in question was acquired, the fact that the title

is in the name of the wife alone is determinative of its natureas paraphernal, i.e., belonging exclusively to said

spouse.45

The only import of the title is that Corazon is the

owner of said property, the same having been registered in

her name alone, and that she is married to Rogelio Ruiz.46

III

We now resolve the issue of whether the rates of interests

and surcharges on the obligation of petitioner to private

respondent are legal.

The four (4) unpaid promissory notes executed by petitioner

in favor of private respondent are in the following amounts

and maturity dates:

(1) P750,000.00, dated March 22, 1995 matured on April 21,

1996;

(2) P100,000.00, dated April 21, 1995 matured on August 21,

1995;

(3) P100,000.00, dated May 23, 1995 matured on November

23, 1995; and

(4) P100,000.00, dated December 21, 1995 matured on

March 1, 1996.

The P750,000.00 promissory note dated March 22, 1995 has

the following provisions:

(1) 3% monthly interest, from the signing of the note until its

maturity date;

(2) 10% compounded monthly interest on the remaining

balance at maturity date;

(3) 1% surcharge on the principal loan for every month of

default; and

(4) 25% attorneys fees.

The P100,000.00 promissory note dated April 21, 1995 has

the following provisions:

(1) 3% monthly interest, from the signing of the note until its

maturity date;

(2) 10% monthly interest on the remaining balance at

maturity date;

(3) 1% compounded monthly surcharge on the principal loan

for every month of default; and


The two (2) other P100,000.00 promissory notes dated May

23, 1995 and December 1, 1995 have the following

provisions:

(1) 3% monthly interest, from the signing of the note until itsmaturity date;

(2) 10% compounded monthly interest on the remaining

balance at maturity date;

(3) 10% surcharge on the principal loan for every month of

default; and


We affirm the ruling of the appellate court, striking down as

invalid the 10% compounded monthly interest, the 10%

surcharge per month stipulated in the promissory notesdated May 23, 1995 and December 1, 1995, and the 1%

compounded monthly interest stipulated in the promissory

note dated April 21, 1995. The legal rate of interest of 12%

per annum shall apply after the maturity dates of the notes

until full payment of the entire amount due. Also, the only

permissible rate of surcharge is 1% per month, without

compounding. We also uphold the award of the appellate

court of attorneys fees, the amount of which having been

reasonably reduced from the stipulated 25% (in the March

22, 1995 promissory note) and 10% (in the other three

promissory notes) of the entire amount due, to a fixed

amount of P50,000.00. However, we equitably reduce the 3%

per month or 36% per annum interest present in all four (4)

promissory notes to 1% per month or 12% per annum

interest.

The foregoing rates of interests and surcharges are in accord

with Medel vs. Court of Appeals,47

Garcia vs. Court of

Appeals,48

Bautista vs. Pilar Development Corporation,49

and

the recent case of Spouses Solangon vs. Salazar.50

This Court

invalidated a stipulated 5.5% per month or 66% per annum

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ARTICLE 1175

interest on a P500,000.00 loan in Medel51

and a 6% per

month or 72% per annum interest on a P60,000.00 loan

in Solangon52

for being excessive, iniquitous, unconscionable

and exorbitant. In both cases, we reduced the interest rate to

12% per annum. We held that while the Usury Law has been

suspended by Central Bank Circular No. 905, s. 1982, effective

on January 1, 1983, and parties to a loan agreement have

been given wide latitude to agree on any interest rate, still

stipulated interest rates are illegal if they are unconscionable.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.53

On the other hand, in Bautista vs. Pilar Development

Corp.,54

this Court upheld the validity of a 21% per annum

interest on a P142,326.43 loan, and in Garcia vs. Court of

Appeals, sustained the agreement of the parties to a 24% per

annum interest on an P8,649,250.00 loan. It is on the basis of

these cases that we reduce the 36% per annum interest to

12%. An interest of 12% per annum is deemed fair and

reasonable. While it is true that this Court invalidated a much

higher interest rate of 66% per annum inMedel55and 72%in Solangon

56it has sustained the validity of a much lower

interest rate of 21% in Bautista57

and 24% in Garcia.58

We still

find the 36% per annum interest rate in the case at bar to be

substantially greater than those upheld by this Court in the

two (2) aforecited cases.

The 1% surcharge on the principal loan for every month of

default is valid. This surcharge or penalty stipulated in a loan

agreement in case of default partakes of the nature of

liquidated damages under Art. 2227 of the New Civil Code,

and is separate and distinct from interest payment.59

Also

referred to as a penalty clause, it is expressly recognized bylaw. It is an accessory undertaking to assume greater liability

on the part of an obligor in case of breach of an

obligation.60

The obligor would then be bound to pay the

stipulated amount of indemnity without the necessity of

proof on the existence and on the measure of damages

caused by the breach.61

Although the courts may not at

liberty ignore the freedom of the parties to agree on such

terms and conditions as they see fit that contravene neither

law nor morals, good customs, public order or public policy, a

stipulated penalty, nevertheless, may be equitably reduced if

it is iniquitous or unconscionable.62

In the instant case, the

10% surcharge per month stipulated in the promissory notes

dated May 23, 1995 and December 1, 1995 was properly

reduced by the appellate court.

In sum, petitioner shall pay private respondent the following:

1. Principal of loan under promissory note

dated March 22, 1995

P750,000.00

a. 1% interest per month on principal

from March 22, 1995 until fully paid,

less P270,000.00 paid by petitioner as

interest from April 1995 to March 1996

b. 1% surcharge per month on principal

from May 1996 until fully paid


dated April 21, 1995

P100,000.00


from April 21, 1995 until fully paid


from September 1995 until fully paid


dated May 23, 1995

P100,000.00


from May 23, 1995 until fully paid


from December 1995 until fully paid


dated December 1, 1995

P100,000.00


from December 1, 1995 until fully paid


from April 1996 until fully paid

5. Attorneys fees P 50,000.00

Hence, since the mortgage is valid and the loan it secures

remains unpaid, the foreclosure proceedings may nowproceed.

IN VIEW WHEREOF, the appealed Decision of the Court o

Appeals is AFFIRMED, subject to the MODIFICATION that the

interest rate of 36% per annum is ordered reduced to 12 %

per annum.

SO ORDERED.

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ARTICLE 1175

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.

R E S O L U T I O N

TINGA, J.:

Under consideration are the motion for

reconsideration1dated 23 December 2005 and supplemental

motion for reconsideration2dated 23 January 2006, both filed

by respondent Paramount Insurance Corporation

(Paramount) with regard to our Decision3dated 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 withrespondents 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 whateve

amount it would pay petitioner Philguarantee including al

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 newsubstantial 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 decisionsought 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.
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ARTICLE 1175

Under the surety bond,5Paramount 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.6Nevertheless, 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 ofParamount 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,7citing our ruling in Medel v. Court of

Appeals.8In 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,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 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 additiona

penalty charge of 8% per annum would sufficiently cover

whatever else damages petitioner may have incurred such asattorneys 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 timesthe principal debt.

While we have sustained the validity of much higher interest

rates of 21% per annum in Bautista v. Pilar Development

Corporation15and 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 hereby MODIFIED. 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 FINALITYin all othe

respects.

SO ORDERED.
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