GR 140608; (February, 2007) (Digest)
G.R. No. 140608 . February 5, 2007. PERMANENT SAVINGS AND LOAN BANK, Petitioner, vs. MARIANO VELARDE, Respondent.
FACTS
Permanent Savings and Loan Bank filed a collection case against Mariano Velarde for a loan evidenced by a promissory note. The Regional Trial Court and the Court of Appeals dismissed the complaint, ruling that the bank failed to prove the loan’s existence. The Supreme Court, in a 2004 Decision, reversed these rulings. The Court held that Velarde, in his Answer, failed to specifically deny under oath the genuineness and due execution of the promissory note as required by the Rules of Court. Consequently, the note was deemed admitted, and Velarde was ordered to pay the principal of ₱1,000,000.00 plus 25% interest, a 24% penalty per annum from 1983, and attorney’s fees.
Velarde filed a motion for reconsideration. While not contesting the procedural lapse that led to the admission of the promissory note, he sought a reduction of the monetary award, arguing that the compounded interest and penalties had ballooned the obligation to over ₱15 million, which was grossly disproportionate and inequitable.
ISSUE
Whether the Supreme Court, in the interest of equity, can modify the monetary award despite the procedural admission of the promissory note.
RULING
Yes. The Court partially granted the motion for reconsideration and significantly reduced the award. The legal logic proceeds from the principle that while rules of procedure are essential for orderly litigation, their rigid application must yield to equity when it leads to patently unjust and unconscionable outcomes. The Court affirmed its prior finding that Velarde’s failure to specifically deny the promissory note resulted in its judicial admission, establishing his liability for the principal loan.
However, the Court exercised its equitable powers to temper the award. It found the stipulated 25% interest and 24% penalty, accumulating over two decades, to be excessive and iniquitous. The Court considered several mitigating factors: the procedural lapse was primarily counsel’s error, Velarde relied in good faith on the lower courts’ initial rulings absolving him, and the protracted appeals contributed to the obligation’s exponential growth. Following precedents like Medel v. Court of Appeals, the Court reduced the interest to 12% per annum from the date of default until the RTC decision, and further imposed only 12% legal interest per annum from finality until full payment. Attorney’s fees were also reduced to a nominal amount. This balancing act upholds the enforcement of procedural rules to establish the fact of the loan while employing equity to prevent a recovery that is manifestly oppressive and unjust.