G.R. No. 113926 October 23, 1996
SECURITY BANK AND TRUST COMPANY, petitioner, vs. REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA VENTURA, respondents.

FACTS

Petitioner Security Bank and Trust Company (SBTC) extended loans to respondent Magtanggol Eusebio, evidenced by three promissory notes executed in 1983, with co-maker Leila Ventura. Each note stipulated an interest rate of 23% per annum. Upon Eusebio’s failure to pay the balances upon maturity, SBTC filed a collection case.
The Regional Trial Court ruled in favor of SBTC but modified the interest rate, reducing it from the contractually stipulated 23% per annum to 12% per annum. The trial court held defendant Ventura jointly and severally liable. SBTC filed a motion for partial reconsideration, arguing for the enforcement of the 23% interest rate and quarterly compounding as per the notes, which was denied. Hence, this petition.

ISSUE

Whether the stipulated interest rate of 23% per annum in the promissory notes is valid and enforceable, or if the court may unilaterally reduce it to 12% per annum.

RULING

The Supreme Court ruled in favor of the petitioner, upholding the validity of the 23% stipulated interest rate. The Court clarified that Central Bank Circular No. 905, which took effect in 1982, expressly removed the interest rate ceilings prescribed under the Usury Law. Section 1 of the Circular states that rates are “not be subject to any ceiling.”
Consequently, contracting parties are free to agree upon any interest rate. The 12% per annum rate mentioned in Section 2 of the same Circular applies only in the absence of a stipulation. The trial court therefore erred in overriding the clear and voluntary agreement of the parties. The promissory notes, signed without objection, constituted a binding contract under Article 1306 of the Civil Code. The decision was affirmed with the modification that the applicable interest rate is 23% per annum as contractually stipulated.