GR 148491; (February, 2007) (Digest)
G.R. No. 148491 ; February 8, 2007
SPOUSES ZACARIAS BACOLOR and CATHERINE BACOLOR, Petitioners, vs. BANCO FILIPINO SAVINGS AND MORTGAGE BANK, DAGUPAN CITY BRANCH and MARCELINO C. BONUAN, Respondents.
FACTS
On February 11, 1982, petitioners Spouses Bacolor obtained a loan of ₱244,000.00 from respondent Banco Filipino, secured by a real estate mortgage. The promissory note stipulated a 24% per annum interest rate, a 10-year term, and additional charges for penalties, service fees, attorney’s fees, and liquidated damages. Petitioners paid ₱412,199.36 from March 1982 to July 1991 but subsequently defaulted. In August 1992, the bank notified them of an outstanding balance of ₱840,845.61 and later initiated extra-judicial foreclosure proceedings.
Prior to the foreclosure, petitioners filed a complaint alleging the loan terms were usurious and excessive. They argued that the combined interest and charges were unconscionable. They further contended that the bank, having been placed under closure by the Monetary Board, ceased to function as a banking institution and thus could not legally charge interest or foreclose the mortgage.
ISSUE
Whether the stipulated 24% per annum interest rate, together with the ancillary charges, is excessive, unconscionable, and violative of the Usury Law.
RULING
The Supreme Court denied the petition and affirmed the lower courts’ decisions, ruling the interest rate was neither usurious nor unconscionable. The legal logic rests on the applicable laws at the time of contract execution. While the Usury Law (Act 2655) generally set ceilings, Central Bank Circular No. 783 (effective July 1981) removed interest rate ceilings for loans with a maturity exceeding 730 days. The Bacolors’ loan had a 10-year term, thus falling under this exemption; the 24% rate was legally permissible as the parties freely stipulated it in writing, satisfying Article 1956 of the Civil Code.
The Court further held that the bank’s closure did not strip it of the capacity to collect on existing loans or charge stipulated interest. A bank under liquidation continues normal operations related to preserving assets, including collecting receivables and foreclosing mortgages. The charges for penalties and attorney’s fees were deemed valid contractual stipulations intended to ensure payment, not evidence of unconscionability. The Court found no basis to declare the terms excessive, emphasizing the parties’ freedom to contract and the absence of statutory violation at the time of agreement.