G.R. No. 130759 ; June 20, 2003
ASIATRUST DEVELOPMENT BANK, Petitioner, vs. CONCEPTS TRADING CORPORATION, Respondent.

FACTS

In March 1986, respondent Concepts Trading Corporation obtained a ₱2,000,000 loan from petitioner Asiatrust Development Bank, secured by a promissory note with a 23% annual interest and a schedule of quarterly amortizations. The note contained an acceleration clause making the entire sum due upon default of any installment. After the respondent defaulted on payments due in August and November 1987, the petitioner demanded full payment. The parties subsequently entered into a Memorandum of Agreement (MOA) on March 30, 1988, wherein the respondent acknowledged the overdue loan and agreed to a new monthly installment scheme of ₱150,000, starting with an initial payment of ₱159,259.14. The MOA stipulated that default under this new mode would also automatically accelerate the entire obligation.
The respondent complied by issuing post-dated checks for the first ten months (May 1988 to February 1989). However, when the petitioner later requested the next set of checks as per the MOA, the respondent failed to deliver them. The petitioner then sent a final demand for the full outstanding balance. The respondent filed a petition for declaratory relief, contending it was updated on payments with only a minimal balance left, while the petitioner claimed a much larger sum was owed, applying previous payments to penalties and interest first.

ISSUE

The primary issue is whether the Court of Appeals correctly affirmed the trial court’s computation of the respondent’s remaining loan balance and the deletion of penalty charges.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. The legal logic centers on the interpretation of the MOA as a novation of the original loan terms. The MOA constituted a subsequent agreement that modified the original promissory note’s payment schedule. By its clear terms, the MOA established a new monthly amortization plan for the payment of the principal loan obligation. The petitioner’s argument that the respondent’s payments should be applied first to accrued penalties and interest, leaving the principal largely untouched, was rejected. The Court held that the monthly payments of ₱150,000 were intended for the satisfaction of the principal, as expressly stipulated in the MOA.
Furthermore, the Court upheld the deletion of the 36% per annum penalty charge. The MOA did not expressly reiterate this penalty; it only provided for acceleration upon default under the new payment mode. The imposition of such a high penalty was deemed unconscionable and contrary to principles of equity. The petitioner’s own statement of account was accorded little probative value, as it was inconsistent with the MOA’s terms and its witness’s testimony. The Court emphasized that it is not its function under a Rule 45 petition to re-evaluate the evidence, finding no reason to overturn the factual assessments of the lower courts.