12/10/2016 MedelvsCA:131622:November27,1998:J.

Pardo:ThirdDivision

THIRDDIVISION

[G.R.No.131622.November27,1998]

LETICIAY.MEDELDR.RAFAELMEDELandSERVANDOFRANCO,petitioners, vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G.
GONZALES, JR., doing lending business under the trade name and style
"GONZALESCREDITENTERPRISES",respondents.

DECISION
PARDO,J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of
Court,seekingtosetasidethedecisionoftheCourtofAppeals,[1]anditsresolutiondenyingreconsideration,[2]
thedispositiveportionofwhichdecisionreadsasfollows:
"WHEREFORE,theappealedjudgmentisherebyMODIFIEDsuchthatdefendantsare
herebyorderedtopaytheplaintiff:thesumofP500,000.00,plus5.5%permonthinterestand
2%servicechargeperannumeffectiveJuly23,1986,plus1%permonthofthetotalamount
dueanddemandableaspenaltychargeseffectiveAugust23,1986,untiltheentireamountis
fullypaid.
"TheawardtotheplaintiffofP50,000.00asattorney'sfeesisaffirmed.Andsoisthe
impositionofcostsagainstthedefendants.

SOORDERED."[3]

TheCourtrequiredtherespondentstocommentonthepetition,[4]whichwasfiledonApril3,1998,[5] and
thepetitionerstoreplythereto,whichwasfiledonMay29,1998.[6]Wenowresolvetogiveduecoursetothe
petitionanddecidethecase.
Thefactsofthecase,asfoundbytheCourtofAppealsinitsdecision,whichareconsideredbindingand
conclusiveonthepartiesherein,astheappealislimitedtoquestionsoflaw,areasfollows:
OnNovember7,1985,ServandoFrancoandLeticiaMedel(hereafterServandoandLeticia)obtainedaloan
from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the
name"GonzalesCreditEnterprises",intheamountofP50,000.00,payableintwomonths.Veronicagaveonly
theamountofP47,000.00,totheborrowers,assheretainedP3,000.00,asadvanceinterestforonemonthat6%
permonth.Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on
January7,1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of
P90,000.00,payableintwomonths,at6%interestpermonth.Theyexecutedapromissorynotetoevidencethe
loan,maturingonJanuary19,1986.TheyreceivedonlyP84,000.00,outoftheproceedsoftheloan.
Onmaturityofthetwopromissorynotes,theborrowersfailedtopaytheindebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount 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
executethemortgage.ServandoandLeticiaexecutedapromissorynoteinfavorofVeronicatopaythesumof
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P300,000.00,afteramonth,oronJuly11,1986.However,onlythesumofP275,000.00,wasgiventothemout
oftheproceedsoftheloan.
Likethepreviousloans,ServandoandMedelfailedtopaythethirdloanonmaturity.
OnJuly23,1986,ServandoandLeticiawiththelatter'shusband,Dr.RafaelMedel,consolidatedalltheir
previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00,bringingtheirindebtednesstoatotalofP500,000.00,payableonAugust23,1986.Theexecuteda
promissorynote,readingasfollows:

"Baliwag,BulacanJuly23,1986
"MaturityDateAugust23,1986

"P500,000.00
"FORVALUERECEIVED,I/WEjointlyandseverallypromisetopaytotheorderofVERONICAR.
GONZALESdoingbusinessinthebusinessstyleofGONZALESCREDITENTERPRISES,Filipino,
oflegalage,marriedtoDaniloG.Gonzales,Jr.,ofBaliwagBulacan,thesumofPESOS........FIVE
HUNDREDTHOUSAND.....(P500,000.00)PhilippineCurrencywithinterestthereonattherateof
5.5PERCENTpermonthplus2%servicechargeperannumfromdatehereofuntilfullypaid
accordingtotheamortizationschedulecontainedherein.(Underscoringsupplied)
"Paymentwillbemadeinfullatthematuritydate.
"ShouldI/WEfailtopayanyamortizationorportionhereofwhendue,alltheotherinstallments
togetherwithallinterestaccruedshallimmediatelybedueandpayableandI/WEherebyagreetopay
anadditionalamountequivalenttoonepercent(1%)permonthoftheamountdueanddemandableas
penaltychargesintheformofliquidateddamagesuntilfullypaidandthefurthersumofTWENTY
FIVEPERCENT(25%)thereoninfull,withoutdeductionsasAttorney'sFeewhetheractuallyincurred
ornot,ofthetotalamountdueanddemandable,exclusiveofcostsandjudicialorextrajudicial
expenses.(Underscoringsupplied)
"I,WEfurtheragreethatintheeventthepresentrateofinterestonloanisincreasedbylaworthe
CentralBankofthePhilippines,theholdershallhavetheoptiontoapplyandcollecttheincreased
interestchargeswithoutnoticealthoughtheoriginalinteresthavealreadybeencollectedwhollyor
partiallyunlessthecontraryisrequiredbylaw.
"Itisalsoaspecialconditionofthiscontractthatthepartieshereinagreethattheamountofpeso
obligationunderthisagreementisbasedonthepresentvalueofpeso,andiftherebeanychangeinthe
valuethereof,duetoextraordinaryinflationordeflation,oranyothercauseorreason,thenthepeso
obligationhereincontractedshallbeadjustedinaccordancewiththevalueofthepesothenprevailing
atthetimeofthecompletefulfillmentofobligation.
"Demandandnoticeofdishonorwaived.Holdermayacceptpartialpaymentsandgrantrenewalsof
thisnoteorextensionofpayments,reservingrightsagainsteachandallindorsersandallpartiestothis
note.
"INCASEOFJUDICIALExecutionofthisobligation,oranypartofit,thedebtorswaiveallhis/their
rightsundertheprovisionsofSection12,Rule39,oftheRevisedRulesofCourt."
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and
penalties,evidencedbytheabovequotedpromissorynote.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the
RegionalTrialCourtofBulacan,Branch16,atMalolos,Bulacan,acomplaintforcollectionofthefullamount
oftheloanincludinginterestsandothercharges.
InhisanswertothecomplaintfiledwiththetrialcourtonApril5,1990,defendantServandoallegedthathe
didnotobtainanyloanfromtheplaintiffsthatitwasdefendantsLeticiaandDr.RafaelMedelwhoborrowed
fromtheplaintiffsthesumofP500,000.00,andactuallyreceivedtheamountandbenefitedtherefromthatthe
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loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco)
signedthepromissorynoteonlyasawitness.
IntheirseparateanswerfiledonApril10,1990,defendantsLeticiaandRafaelMedelallegedthattheloan
wasthetransactionofLeticiaYaptinchay,whoexecutedamortgageinfavoroftheplaintiffsoveraparcelof
realestatesituatedinSanJuan,Batangasthattheinterestrateisexcessiveat5.5%permonthwithadditional
servicechargeof2%perannum,andpenaltychargeof1%permonththatthestipulationforattorney'sfeesof
25% ofthe amount due is unconscionable, illegal and excessive, and that substantial payments made were
appliedtointerest,penaltiesandothercharges.
Afterduetrial,thelowercourtdeclaredthatthedueexecutionandgenuinenessofthefourpromissorynotes
had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the
plaintiffsontheloanswasunconscionableand"revoltingtotheconscience".Hence,thetrialcourtapplied"the
provisionoftheNew[Civil]Code"thatthe"legalrateofinterestforloanorforbearanceofmoney,goodsor
creditis12%perannum."[7]
Accordingly,onDecember9,1991,thetrialcourtrenderedjudgment,thedispositiveportionofwhichreads
asfollows:

"WHEREFORE,premisesconsidered,judgmentisherebyrendered,asfollows:

"1.OrderingthedefendantsServandoFrancoandLeticiaMedel,jointlyandseverally,topayplaintiffsthe
amountofP47,000.00plus12%interestperannumfromNovember7,1985and1%permonthaspenalty,until
theentireamountispaidinfull.

"2.OrderingthedefendantsServandoFrancoandLeticiaY.Medeltoplaintiffs,jointlyandseverallytheamount
ofP84,000.00with12%interestperannumand1%percentpermonthaspenaltyfromNovember19,1985until
thewholeamountisfullypaid

"3.Orderingthedefendantstopaytheplaintiffs,jointlyandseverally,theamountofP285,000.00plus12%
interestperannumand1%permonthaspenaltyfromJuly11,1986,untilthewholeamountisfullypaid

"4.Orderingthedefendantstopayplaintiffs,jointlyandseverally,theamountofP50,000.00asattorney'sfees

"5.Allcounterclaimsareherebydismissed.

"Withcostsagainstthedefendants."[8]

Induetime,bothplaintiffsanddefendantsappealedtotheCourtofAppeals.
In their appeal, plaintiffsappellants 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 of money, goods or credit at 12% per
annum,appliesonlyintheabsenceofastipulationoninterestrate,butnotwhenthepartiesagreedthereon.
The Court of Appeals sustained the plaintiffsappellants' contention.It ruled that "the Usury Law having
become'legallyinexistent'withthepromulgationbytheCentralBankin1982ofCircularNo.905,thelender
andborrowercouldagreeonanyinterestthatmaybechargedontheloan".[9]TheCourtofAppealsfurtherheld
that"theimpositionof'anadditionalamountequivalentto1%permonthoftheamountdueanddemandableas
penaltychargesintheformofliquidateddamagesuntilfullypaid'wasallowedbylaw".[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the
RegionalTrialCourt,disposingasfollows:
"WHEREFORE,theappealedjudgmentisherebyMODIFIEDsuchthatdefendantsare
herebyorderedtopaytheplaintiffsthesumofP500,000.00,plus5.5%permonthinterestand
2%servicechargeperannumeffectiveJuly23,1986,plus1%permonthofthetotalamount

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dueanddemandableaspenaltychargeseffectiveAugust24,1986,untiltheentireamountis
fullypaid.
"TheawardtotheplaintiffsofP50,000.00asattorney'sfeesisaffirmed.Andsoisthe
impositionofcostsagainstthedefendants.
"SOOREDERED."[11]
On April 15, 1997, defendantsappellants filed a motion for reconsideration of the said decision. By
resolutiondatedNovember25,1997,theCourtofAppealsdeniedthemotion.[12]
Hence,defendantsinterposedthepresentrecourseviapetitionforreviewoncertiorari.[13]
Wefindthepetitionmeritorious.
Basically,theissuerevolvesonthevalidityoftheinterestratestipulatedupon.Thus,thequestionpresented
iswhetherornotthestipulatedrateofinterestat5.5%permonthontheloaninthesumofP500,000.00,that
plaintiffsextendedtothedefendantsisusurious.Inotherwords,istheUsuryLawstilleffective,orhasitbeen
repealedbyCentralBankCircularNo.905,adoptedonDecember22,1982,pursuanttoitspowersunderP.D.
No.116,asamendedbyP.D.No.1684?
Weagreewithpetitionersthatthestipulatedrateofinterestat5.5%permonthontheP500,000.00loanis
excessive, iniquitous, unconscionable and exorbitant.13 However, we can not consider the rate "usurious"
because this Court has consistently held that Circulr No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by the Usury Law[14] and that the Usury Law is
now"legallyinexistent".[15]
InSecurityBankandTrustCompanyvs.RegionalTrialCourtofMakati,Branch61[16]theCourtheldthat
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
anotherlaw."[17]IntherecentcaseofFlorendovs.CourtofAppeals[18],theCourtreiteratedtherulingthat"by
virtueofCBCircular905,theUsuryLawhasbeenrenderedineffective"."Usuryhasbeenlegallynonexistent
inourjurisdiction.Interestcannowbechargedaslenderandborrowermayagreeupon."[19]
Nevertheless,wefindtheinterestat5.5%permonth,or66%perannum,stipulateduponbythepartiesin
thepromissorynoteiniquitousorunconscionable,and,hence,contrarytomorals("contrabonosmores"),ifnot
againstthelaw.[20] The stipulation is void.[21] The courts shall reduce equitably liquidated damages, whether
intendedasanindemnityorapenaltyiftheyareiniquitousorunconscionable.[22]
Consequently,theCourtofAppealserredinupholdingthestipulationoftheparties.Rather,weagreewith
thetrialcourtthat,underthecircumstances,interestat12%perannum,andanadditional1%amonthpenalty
chargeasliquidateddamagesmaybemorereasonable.
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 of Bulacan,
Branch16,Malolos,Bulacan,inCivilCaseNo.134M90,involvingthesameparties.
Nopronouncementastocostsinthisinstance
SOORDERED.
Narvasa,C.J.(Chairman),Romero,Kapunan,andPurisima,JJ.,concur.

[1]CAG.R.CVNo.36096,promulgatedonMarch21,1997.

[2]IssuedonNovember25,1995.

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[3]Rollo,pp.2228.

[4]ResolutiondatedFebruary23,1998,p.44,Rollo.

[5]Rollo,pp.4548.

[6]Rollo,pp.5356.

[7]Petition,Rollo,pp.821,17.

[8]Rollo,pp36A43.

[9]CitingVerdejov.CourtofAppeals,157SCRA743(1988)LiamLawv.OlympicSawmillCo.,129SCRA439(1984).

[10]CitingArticle2209,CivilCode,andStateInvestmentHouse,Inc.v.CourtofAppeals,198SCRA390.

[11]Rollo,p.27.

[12]Rollo,p.36.

[13]Rollo,pp.821.

13Petition,pp.1517,Rollo.

[14]Peoplev.Dizon,329Phil.687[1996].

[15]LiamLawv.OlympicSawmillCo.,129SCRA439,442.

[16]331Phil.787[1996].

[17]Palancav.CourtofAppeals,238SCRA593,601[1994].

[18]333Phil.535[1996].

[19]Peoplev.Dizon,supra,citingothercases.

[20]Article1306,CivilCode.

[21]Cf.Ibarrav.Aveyro,37Phil.274Almedav.CourtofAppeals,256SCRA292[1996].

[22] Article 2227, Civil Code Joe's Radio and Electrical Supply v. Alto Electronics Corp., 104 Phil. 33 [1958] Social Security
Commissionv.Almeda,168SCRA474[1988]Palmaresv.CourtofAppeals,G.R.No.126490,March31,1998,reportedinThe
CourtSystemsJournal,SpecialEdition1,October,1998,pp.7993.

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